Deal could revive struggling Eastern Shore hospital

NASSAWADOX

Officials of Shore Memorial Hospital, a struggling hospital on the rural Eastern Shore, announced Monday they are seeking to become part of the Riverside Health System.

An agreement between Shore Memorial and the Newport News-based health organization could be complete by late summer if all goes smoothly. The affiliation would allow the Eastern Shore hospital to replace its aging facility and improve its finances.

Shore Memorial trustees have been examining options for a couple of years, and in September asked for proposals from other health systems.

"Until three years ago, the organization was extremely proud of its independence, but times have changed, and the opportunities for small hospitals are rapidly diminishing," said Joseph Zager, the hospital's president and chief executive officer.

The 143-bed non profit hospital lost $700,000 last year, according to Zager. The economic downturn and proposed state cuts to Medicaid were not going to help the shaky bottom line.

Zager would not say how many proposals were submitted, but he said one of the winning aspects of Riverside's proposal was the fact that other community hospitals in its system are run by local boards.

Riverside Health System has three hospitals, the largest in Newport News, one in Gloucester and one on the Northern Neck.

The system also has two specialty hospitals - psychiatric and physical rehabilitation - nine long-term care facilities, and three retirement communities.

Shore Memorial is Virginia Eastern Shore's only hospital and dates to 1928. Its health network includes an array of outpatient services such as home health, rehabilitation and cancer treatment.

Rural, independent hospitals across the state have struggled to survive for a combination of reasons. The hospitals tend to serve older and lower income populations. That patient base is insured by Medicare, the federal insurance for older people, and Medicaid, the state-federal insurance for low-income people and the disabled.

Both types of insurance pay less than private insurers. And in Virginia, legislators are poised to cut Medicaid reimbursements to hospitals this year as they work to make up for the state's $2.9 billion budget shortfall.

About 11 percent of Shore Memorial's revenue comes from Medicaid, compared with 7 to 8 percent at Riverside's three acute-care hospitals.

Rural hospitals also have a lower volume of patients, which makes it hard to achieve economies of scale that larger systems enjoy. In 2008, for instance, the average daily census at Shore Memorial was 55.

The hospital was built in 1970 and needs replacing, which could cost $70 million. That was one of the driving forces behind the move to affiliate.

Zager said being part of a larger system could help improve finances by giving the hospital more purchasing and advocacy power and a better negotiating position with insurers. It could increase its access to capital for construction, equipment and services.

Zager said Riverside's community-minded approach meshes well with Shore Memorial's philosophy.

Richard Pearce, chief executive officer of Riverside, said even though the economy has been hard on hospitals in general, Riverside sees potential in expanding its system to include Shore Memorial.

"When I look at this hospital, what I see is a very healthy, thriving community," Pearce said at a Monday press conference at Shore Memorial.

Officials from both Riverside and Shore Memorial said there is a commitment for a replacement building, probably within five years. "What form that will take they are not sure, and we are not sure," Zager said when asked if the new facility would remain at the same site.

Pearce said he doesn't expect the hospital's medical staff to change greatly, nor does he see specialist referral patterns changing significantly.

"The strength of the physician community that exists here is one of things that was very attractive to us," Pearce said. "We try to cultivate relationships and maintain those that exist."

Elizabeth Simpson, (757) 446-2635, elizabeth.simpson@pilotonline.com